As investors move to fee-based financial planners, rather than those paid per transaction, those planners have become more comfortable recommending exchange-traded funds, according to Strategic Insight.
And as a result, ETF sales will grow by more than 50% over the next year years, catapulting the $725 million industry to more than $1 trillion, Strategic Insight predicts.
ETFs are benefitting from the trend of the investment community moving into a compensation model that favors fees for advice instead of point-of-sale commissions, Loren Fox, a senior research analyst with Strategic Insight, told Reuters.
Even last year, ETFs took in $260 billion, while the mutual fund industry overall fell from $12 trillion to $9.6 trillion.
Throughout the mutual fund industry, nearly $1 trillion in aggregate has been net invested over the past five years in asset-allocation vehicles, including target-date retirement funds, balanced funds and mutual fund wrap programs, according to the Strategic Insight report. This shift in emphasis to asset allocation helps ETFs, as most ETFs enable straight asset allocation.
In a survey of 85 registered investment advisers, the market researcher found that 24% plan to significantly increase their use of ETFs, and 49% said they would increase their weighting in customers portfolios slightly. Another 22% said they would continue recommending the same allocation to ETFs, and only 5% said they would decrease it.